Discovering Policy Surrender Rules In ULIPs

Many investors frequently engage in ULIPs because they are the most tax-efficient option. Because ULIPs are categorised as investment vehicles by the Internal Revenue Service, these are really a mix of both insurance and annuity products, delivering annual benefits as an economic vehicle and tax benefits as policy equipment.

The bulk of people consider the annual tax benefit when participating in any financial asset to decrease their tax liability, but it's also important to consider the tax consequences on the maturity of an insurance contract, ULIP, or other investment. The cost of ULIP premiums is deductible under section 80C, but it's vital to focus on the tax benefit upon maturity.

The overall sum collected by you and your choice once your ULIP expires at the conclusion of its period will be entirely tax-free under section 10 of the Internal Revenue Code (10D). Nevertheless, the tax advantages are really only accessible if the Revenue Tax Act of 1961's insurance rate requirements is fulfilled.

Discovering Policy Surrender Rules In ULIPs

Below are a few policy surrender policies that you must know about ULIPs:

1. Surrendering Within The Lock-In Period

ULIPs have a 5-year lock-in term, however, investors can surrender the fund before it expires. The risk coverage will expire once you file a surrender request, but the surrender value will be paid only at the end of the 5-year term. Another factor to consider is that the investor is not compensated for the value of the fund as of the surrender date. Multiple deductions apply to pay-outs made beyond the lock-in period. Certain discontinuance charges apply when you apply to surrender your coverage.

The leftover fund value is transferred to the Discontinued Policy (DP) fund once the discontinuation charges are deducted. Your money will stay in the DP fund until the lock-in period is up. A fund management fee of up to 0.5 percent of the fund's value may be levied during this time. This fund can also earn interest at a rate of around 4% per year to ensure a minimum assured return.

2. After A Plan Has Been Surrendered, It Can Be Resurrected

Even if you have surrendered the insurance before the lock-in term has ended, you still have the option of reviving it. You have the option of resurrecting your surrendered ULIP within two years of surrender to keep the benefits. The surrender charges previously imposed are added to the DP fund value upon revival, while the outstanding premiums and associated charges are subtracted.

3. Surrendering Once The Lock-In Period Has Expired

ULIPs are long-term investment vehicles. Staying invested for long periods, such as 15-20 years, allows you to benefit from market regularisation while also spreading the costs of mortality, fund management, administrative, and other expenses throughout the policy's tenor.

As a result, surrendering the fund after the lock-in period depreciates the value of your investment. Investors have the opportunity to swap funds if a scheme is underperforming. However, before making a decision, think about current market volatility and fund performance over time. If you need to surrender your policy to fulfil a financial emergency, consider a partial withdrawal option instead.

Conclusion

ULIPs allow people to invest their premiums in a variety of corporate debt funds, and also inter-fund transactions via swaps, often without incurring any tax penalties. A ULIP is a type of insurance wherein the payment is deposited in stock, debt, or term deposit assets.

Also read - Are ULIPs Better Than Mutual Funds?

Understanding Switch Fund Options Available In ULIP

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.